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Reaching out to the Bottom of Pyramid

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Reaching out to the Bottom of Pyramid

Reaching Out to the Bottom of the Pyramid

The concept of ‘Bottom of the Pyramid’ (BOP) was proposed by C.K Prahalad and Hammod in 2002. It refers to the

approximate 4 billion people across the globe with a purchasing power of EUR 1000 per year or less.

The article attempts to provide insights into the Indian Bottom of the Pyramid market segment and the potential it

could offer to a multinational company to expand its market and build a global base here.

The Indian economy is growing at an annual rate of 8 percent. This growth is considerable when compared to the

growth of European countries, which is less than 2 percent on a 10-year average, and the growth of the American

economy, which is approximately 3 percent.

Moreover, there has been significant reduction in poverty levels and increase in quality consciousness among the

Indian rural and urban ‘under-served’ in the past 10 years. This changing scenario in the Indian economy could

translate into an investment opportunity for many multinational companies.

Figure 1: Indian Income Classes 2003:2004

Source: National Council of Applied Economic Research (NCAER)

The NCAER analysis (fig 1) shows an increase of over 150 percent in the number of consumer class households in

the last 10 years. Simultaneously, the ‘deprived’ have decreased from 32 million to 17 million. This emergence of the

BOP segment could be defined as a new consumer market.

The BOP market in India comprises a population of 750 million (70 percent of the population) living in 600,000

villages (rural area). In addition, the 70 million people residing in urban cities constitute the urban poor market. This

‘latent’ market may enable MNCs to develop their global base and expand their market.

From Pyramid to Diamond

The change in the structure of the consumer class as depicted in fig 2 signifies a substantial opportunity for

marketers to capitalise on this fast-growing consumption class. In fact, it is imperative that marketers focus on

developing innovative products to meet consumer needs. The rural market has been increasing steadily at a rate

greater than the urban market. About 53 percent of FMCG and 59 percent of the consumer goods market reside in

the rural sector. Therefore, rural markets are vital for the growth of most companies.

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Whitepaper

www.evalueserve.com pr@evalueserve.com

Figure 2: From Pyramid to Diamond

Source: National Council of Applied Economic Research (NCAER)

Unilever India (HLL) is the biggest market player in consumer goods. In 2005, rural markets contributed 35 percent to

HLL’s sales whereas urban markets constituted 65 percent. This ratio is in favour of the rural market considering the

low levels of penetration. HLL considers BOP consumers to be an important part of its consumer portfolio and has

specific strategies and programmes to increase its reach in this segment.

“With an increasing number of households falling under the climbers and consumers segments, the income

distribution in India is changing in its structure from a pyramid to a diamond.”

HLL vs P&G: BOP Activity

HLL’s market share (by volume) in the shampoo and detergent markets is 47.5 percent and 38.5 percent,

respectively, as against P&G’s market share (by volume) of 23.2 percent and 12.4 percent. P&G’s target consumers

mostly comprise the upper segment. When P&G entered the Indian market, it did so with an aim to make profits and

not increase its market share. Hence, the company

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